Solution to Sydney housing crisis is more supply

It’s no secret – prices in Sydney’s housing market are at astronomical levels with the median cost of a home in the harbour city recently hitting a record $1.5 million1.

While it’s great for investors, such surging prices have made it harder than ever for first home buyers and working families to break into the market.

The solution to the housing affordability problem is undoubtedly complex, but one big contributor to the challenge is clear – there is simply insufficient supply to meet demand.

That’s why a number of leading market participants, including the Housing Industry Association (HIA), say that lifting the number of dwellings under construction is key to finding more people a home in Sydney.

Housing Industry Association wants more supply

HIA NSW Executive Director David Bare says the effort to boost supply is already underway, with new housing starts rising by 4.3 per cent during 2016 and 2017, compared to the previous financial year.

However, he says more needs to be done on the supply side in a bid to push prices lower.

“Healthy growth in our state’s housing stock is essential in order to accommodate underlying demand and a growing economy and population,” Bare says.

While numerous developments are currently underway across Sydney, such as the 500 home Caddens Hill housing project near Penrith, Bare says strong action on tax and red tape is needed to help ensure sufficient stock is added in coming years.

Rising Sydney prices causing affordability ‘angst’

It is a view echoed by AMP Capital Chief Economist Shane Oliver, who also favours boosting supply.

Oliver recently pointed out the fact that over the last five years Sydney dwelling prices have risen 73 per cent, resulting in “much angst around poor affordability and high household debt” across the city.2

“Policies to help address poor housing affordability should focus on boosting new supply, particularly of stand-alone homes which have lagged,” he says.

“This includes relaxing land use restrictions, releasing land faster, speeding up approval processes and encouraging greater decentralisation.”

Tax reform a potential lever to boost supply

Like the HIA, Oliver also advocates using tax reform to increase supply, with potential measures including replacing stamp duty with land tax and clamping down on negative gearing.

He also warns that a significant drop in house prices is unlikely until the Reserve Bank of Australia (RBA) starts to lift the cash rate from its current historic low.

When the RBA does hike rates, potentially in late 2018, Oliver predicts a five to ten per cent pullback in property prices across the country.

“Sydney and Melbourne having seen big gains are most at risk,” he says.